Do not apply for a loan unless you have considered or followed this advice.
- Dave Ramsey warns about the dangers of taking out an expensive mortgage loan.
- He believes that you should not borrow if your home is worth more than 25% of your take home pay.
- This advice can be useful to follow, but with details.
If you receive a mortgage, you have to be smart about it. It’s tempting to try to do whatever it takes to make it happen buy your dream home — especially if a bank says they’ll let you borrow the money you need for the property. But you don’t want to jump into a lot of debt without thinking about all the implications.
That’s why you should consider some valuable advice from Dave Ramsey about one of your situations not at all want to take a home loan. Although not everyone should follow this advice to the letter, it is worth considering his ideas before you agree to borrow.
This is when Ramsey said you shouldn’t borrow
According to Ramsey, you should always say no to a home loan if the monthly cost of your home takes up most of your income.
“You never want a mortgage with a monthly payment that’s more than 25% of your monthly take-home pay,” warns Ramsey. “That 25% limit includes principal, interest, property taxes, home insurance, private mortgage insurance (PMI) and home owner association (HOA) fees.
Ramsey says don’t accept a loan that comes from paying more than this amount because you’re “housing poor,” if you do. This means that most of your money will have to go towards paying your mortgage each month as you struggle to do something else that is important to you.
Should you be listening to Ramsey?
Ramsey believes you should stick with a 15-year mortgage to get your home value below the 25% limit. Not bad advice. A 15-year loan has higher monthly payments and you have more room to devote more of your monthly income to mortgage payments than you can with a 30-year loan. cheap and leave extra cash to save.
But Ramsey is right that you can’t devote a large portion of your monthly income to paying off your home loan without making major sacrifices and increasing your income. worry Although some financial experts suggest that you can go up to 30% of your income (or even more if you have no debt), the basic principle is the same – poverty in the house is in bad shape.
Now, if you live in an expensive place to live, are careful with money, and don’t have debt for other things, and you really want to be a home owner, you might willing to sacrifice to spend more of your income each month. in your house. And it’s a decision that can sometimes make sense, especially if real estate prices are rising rapidly in the area where you live so the landlord can help you increase your utility value.
But, be aware of the dangers of spending money on your home and don’t go into a transaction where you borrow more than 25% to 30% (the most) without thinking deeply about bad things – and Try paying more than a month first to get a sense of the condition of life in what remains.